Takeover of Fannie, Freddie spells hopes for crisis

9th September 2008, 0 comments

The move spells hope to an end of the financial crisis, as Spanish Ibex 35 index surged 3.72 percent on Monday.

9 September 2008

MADRID -- Stock investors across the globe on Monday celebrated the decision by the US Federal Reserve to take over the two biggest US mortgage lenders Fannie Mae and Freddie Mac in a move that practically rules out the collapse of the United States' financial system and the accompanying collateral damage for other countries.

The move fuelled hopes that an end to the financial crisis unleashed by the US subprime crisis last summer could now be in sight.

After hitting its lowest level for this year on Friday, the Spanish Ibex 35 index surged 3.72 percent on Monday. The pattern was similar in Asia earlier in the day and also in Europe.

The main beneficiaries on the day were the banks, a local reaction given that these had led the market lower the previous week. However, there were other sectors that benefited from what is being touted as the beginning of the end of the global financial crisis.

The US administration finally ended up adopting a measure that only days previously had been frowned upon by the New York Stock Exchange, but one that now appears to be the only way of rescuing the two home-loan providers.

The strongest supporters of the free market have ended up accepting that the problems created by subprime loans had acquired a magnitude that the private sector could not take on board.

The outlook for the stock markets appears to have changed radically over the course of a few days. The confidence factor appears to have taken second stage as seen in the recovery in bank stocks. What remain big sources of concern in the short term are borrowing costs and the availability of liquidity.